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COMMODITY DERIVATIVE INSTRUMENTS
 6 Months Ended
Jun. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
COMMODITY DERIVATIVE INSTRUMENTS COMMODITY DERIVATIVE INSTRUMENTS

The Company utilizes derivative instruments to manage its exposure to fluctuations in the underlying commodity prices of its inventory. The Company's management sets and implements hedging policies, including volumes, types of instruments and counterparties, to support oil prices at targeted levels and manage its exposure to fluctuating prices.

The Company’s derivative instruments consist of swap and futures arrangements for oil. In a commodity swap agreement, if the agreed-upon published third-party index price (“index price”) is lower than the swap fixed price, the Company receives the difference between the index price and the swap fixed price. If the index price is higher than the swap fixed price, the Company pays the difference. For futures arrangements, the Company receives the difference positive or negative between an agreed-upon strike price and the market price.

The mark-to-market effects of these contracts as of June 30, 2020 and December 31, 2019, are summarized in the following table. The notional amount is equal to the total net volumetric derivative position during the period indicated. The fair value of the crude oil swap agreements is based on the difference between the strike price and the New York Mercantile Exchange futures price for the applicable trading months.

As of June 30, 2020
Contract Type
Contract Period
Weighted Average Strike Price (Barrels)
Remaining Volume (Barrels)
Fair Value
 
 
 
 
 
Futures
Jun. 2020- Oct. 2020
$
50.57

108,000

(538,297
)
 
 
 
 
$
(538,297
)
As of December 31, 2019
Contract Type
Contract Period
Weighted Average Strike Price (Barrels)
Remaining Volume (Barrels)
Fair Value
 
 
 
 
 
Swap
Dec. 2019-Mar. 2020
$
40.88

130,000

$
539,800

Swap
Dec. 2019-Mar. 2020
$
81.19

130,000

(673,428
)
Futures
Dec. 2019-Mar. 2020
$
84.53

105,000

(242,222
)
 
 
 
 
$
(375,850
)



The carrying values of the Company's derivatives positions and their locations on the consolidated balance sheets as of June 30, 2020 and December 31, 2019 are presented in the table below.

Balance Sheet Classification
Contract Type
2020
2019
 
 
 
 
 
Crude oil swaps
$
—

$
(133,628
)
 
Crude oil futures
(538,297
)
(242,222
)
 
 
 
 
Derivative commodity liability
 
$
(538,297
)
$
(375,850
)


For the three months ended June 30, 2020 and 2019, we recognized a $57,016 gain and a $310,011 loss, respectively, on commodity derivative contracts on the consolidated statements of operations as part of our costs of revenues. For the six months ended June 30, 2020 and 2019, we recognized a $4,484,798 gain and a $1,069,778 loss, respectively, on commodity derivative contracts on the consolidated statements of operations as part of our costs of revenues.